Donor advised funds: Merrill Marketing Initiative

Donor advised funds: Merrill, community foundations team up.

December 2002

Merrill Lynch is launching a donor advised fund program in a joint venture with community foundations that its financial advisers will market to the firm's clients throughout the United States.

Donors will be able to use the fund to make gifts of at least $25,000 to local community foundations, and the dollars will be aggregated and managed by investment firms selected by an investment committee representing community foundations participating in the new Merrill Lynch Community Charitable Funds.

The committee will set policies and targets for allocating assets among equity, fixed-income and other investments, and will select investment managers based on recommendations by Merrill Lynch.

"Community foundations have a limited ability to be able to market themselves to donors," said Alicia Philipp, president of the Community Foundation for Greater Atlanta. "Here we have working with us a huge organization that has the ability to reach out to potential donors."

H. King McGlaughon, first vice president of Merrill Lynch & Co. and director of Merrill's Center for Philanthropy and Nonprofit Management, said the firm wanted to offer its clients a "uniform" charitable product "by leveraging the existing strengths of community foundations, rather than creating our own proprietary gift fund type of offering."

The joint venture, developed during eight months of talks between Merrill Lynch and 20 community foundations, represents a big new player in the increasingly competitive charitable-funds market and builds on a six-year-old joint marketing initiative Merrill has developed with individual community foundations.


Starting in 1996, Merrill encouraged its financial advisers to introduce their clients to their local community foundations, which agreed in return to offer Merrill Lynch to donors as an option for managing assets in donor advised funds they created as a result of referrals by Merrill Lynch advisers. That effort led to partnerships that Merrill Lynch developed with about 170 community foundations, McGlaughon said.

In those current partnerships, he said, individual community foundations create their own forms, terms and policies for their donor advised funds. That poses challenges for some donors and particularly for financial advisers who must master separate rules for community foundations in different locales.

In addition, he said, donor advised funds created through the existing marketing program are invested only in Merrill Lynch's proprietary asset management products.

A big challenge in creating the new venture, Philipp said, has been creating uniform agreements spelling out how the fund will work and how assets will be handled, invested and accounted, for to the donor. The participating community foundations will create an organization that will support the new program and hire a national agent to provide administrative support for investment, technology, accounting, reporting, marketing, communications and tax issues.

Merrill Lynch and participating community foundations will hire NPO Solutions of Concord, N.H., to develop, manage and maintain a Web-based technology platform to function as a central service bureau for the new fund. The fund will be accessible to donors, advisers and community foundations through a password-protected Web site, with multiple levels of access and security, depending on the needs of the user.

Revenue from donor fees, which have not been set but will be based on the size of the gift, will be split among Merrill Lynch, NPO Solutions and the investment managers and community foundations.

Using the Web-based platform, McGlaughon said, a financial adviser meeting with a client in a Merrill Lynch office will be able to download and print out documents creating a donor advised fund. Once those documents are signed and forwarded to the community foundation designated by the donor, the adviser will be able to use the platform to move assets from the client's individual account to an account owned by the community foundation.

The donor then can go online at any time to recommend to the community foundation that it make distributions from the fund, and the community foundation's staff can go online to screen the proposed recipient, communicate its approval to Merrill Lynch and distribute the funds.

Each community foundation will be able to use the site to review all of its funds created through Merrill Lynch, while donors and financial advisers can use the site to review their own funds.

Participating community foundations must meet national standards created through the Community Foundation Leadership Team of the Council on Foundations in Washington, D.C., which is marketing the new fund to it members.

In 2001, the market value of assets at 658 community foundations in the United States totaled $31.4 billion, including $3.5 billion in new gifts to the foundations, according to the annual survey of community foundations prepared by The Columbus Foundation in Ohio and the council's Community Foundation Leadership Team.

Todd Cohen is editor and publisher of Philanthropy Journal, an online newspaper at www.philanthropyjournal.org. He can be reached at tcohen@ajf.org

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